Profit Maximization In The National Football League

Abstract

This paper investigates if NFL teams maximize profits with respect to ticket price. We modify Ferguson et al’s (1991) NHL paper as it pertains to the NFL. A profit function incorporating variable revenue and cost factors such as gate receipts and player expenses is employed. A systems model is used as the estimation procedure to identify the determinants of ticket prices for NFL franchises. The model implies a Kuhn-Tucker based cross equation parameter restriction that result from attendance capacity constraints. Results from the regression are then used in conjunction with other data to numerically test the first order necessary profit maximization conditions. The results indicate that over 80% of NFL teams set ticket prices in a manner consistent with gate receipt and profit maximization.